Florida Legislature Hosts Catastrophe Risk Modeling Presentation

The Florida Legislature hosted a four-hour presentation on April 16, 2007 regarding catastrophe risk modeling and the process by which these models are accepted by the Florida Commission on Hurricane Loss Projection Methodology (the “Commission”).

The Chairman of the meeting, Representative Don Brown (R – DeFuniak Springs), began the meeting by explaining the genesis of the Commission and then turned the presentation over to Commission members to explain the basics of catastrophe risk models.

The Commission provided four members to testify on different aspects of hurricane models, including the engineering component, the statistical component, the meteorological component and regulatory issues. The Commission members explained that these components create a “baseline” range of modeling results that would show whether an individual company’s modeling results fell within the range of scientifically and statistically-acceptable results. Additionally, the Commission members explained that models may differ because companies may choose different to treat the components of their respective models differently.

Five modeling companies sent representatives to testify at the hearing. Three of the five modeling companies showed that their data consistently fell within the range established by the Commission. Interestingly, the Public Model created by Florida International University for use by the Office of Insurance Regulation submitted data showing much higher loss costs than the range established by the Commission for the central portions of Florida. Theoretically, this should cause companies using this model to show a need for significantly higher rates in those areas. However, pursuant to testimony by both the Commission members and representatives of the Public Model, the Public Model plans to modify the use of certain model components that could result in lower rates, instead.